Question

Friends form a partnership called ABC to develop two apartment complexes in their home town, they do not enter into a written partnership agreement. Instead, they simply agree that they will equally share in the profits and losses of the partnership. A soon discovers that B and C are extremely capable and hard workers and begins cutting down the time that he devotes to the partnership. Soon, A is coming into the office only one day a week. He spends the other days hanging out. A brags about what an accomplished apartment complex developer he is, and attracts the attention of two other players, D and E, who also want to get into the business of developing apartment complexes. A convinces D and E to hire him as a consultant, and D and E agree to pay him $2K/week for his consulting services, which money A keeps for himself. During the course of his consulting, A provides D and E with plans for an apartment complex marked “SECRET” that were created by ABC, in order that D and E can use them as a basis for their development. Eventually, at the urging of D and E, A leaves ABC before the two apartment complexes have been completed and becomes partners with D and D in developing apartment complexes that will directly compete with ABC.

1.Has A breached any fiduciary duties to ABC and B and C? Which ones? What specific facts support the breach of each duty that you identify?

2. Is A entitled to be paid for his partnership interest in ABC? If so, how will the buyout price for his interest be calculated? When is A entitled to receive payment?

Answer 1

1- Fiduciaries duties of all directors mandates that all directors in all circumstances must keep the interests of the comapny superior and shall put their sincerest investment to the best efforts to the comapny. By duty they shall take fully mature and wise decisions to avert risks to the company. They shall keep the  interests of the company and stakeholders, ahead and above their own personal interests.They shall not involve in a situation of a personal direct or indirect interest that conflicts, with the interest of the company. In case of any breach there are provisions of punishment.

In the above study "A" has clearly breached his fiduciary duties by not exercising his duties with due and reasonable care, skill and diligence and sincerity. He did not execute his responsibilty towards the interests of the comapny. He put his interest forward by offeruing his services to the competitors while being in service to ABC. He als shared the secrets of business and planning with competitors and harmed the comapny.

2- No he is not entitled to be paid any interest by ABC as he breache his fiduciary duties and left the comapny before the completion of the project.